Bidding in common value fair division games: The winner's curse or even worse?
AbstractA unique indivisible commodity with an unknown common value is owned by group of individuals and should be allocated to one of them while compensating the others monetarily. We study the so-called fair division game (Güth, Ivanova-Stenzel, Königstein, and Strobel (2002, 2005)) theoretically and experimentally for the common value case and compare our results to the corresponding common value auction. Whereas symmetric risk neutral Nash equilibria are rather similar for both games, behavior differs strikingly. Implementing auctions and fair division games in the lab in a repeated setting under first- and second-price rule, we find that overall behavior is much more dispersed for the fair division games than for the auctions. Winners' profit margins and shading rates are on average slightly lower for the fair division game. Moreover, we find that behavior in the fair division game separates into extreme over- and underbidding.
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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2009-090.
Date of creation: 04 Nov 2009
Date of revision:
common value auction; winner's curse; fair division game;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-14 (All new papers)
- NEP-CBE-2009-11-14 (Cognitive & Behavioural Economics)
- NEP-EXP-2009-11-14 (Experimental Economics)
- NEP-GTH-2009-11-14 (Game Theory)
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